ERDF at the Cross Roads?

The 2007-13 English regional ERDF programmes are rapidly moving into a critical make or break phase. They have just two more years to invest what is still a significant amount of uncommitted money. The programmes have experienced very tough operating conditions having navigated through an intense recession which has fundamentally changed economic opportunities. Business growth and job creation objectives have been hit especially hard, as have those for physical development in the face of historically weak commercial property markets.  Uncertainty about the short and medium term economic growth prospects suggests the recessionary backdrop may even outlive the programmes.

Looking forward, the challenge is not going to get any easier. Two additional factors are now being added to the mix:

• severe pressure on public sector funding: measures to reduce the UK’s budget deficit will curtail the amount of match funding for current and future investments
• loss of driving strategic focus: Regional Development Agencies provided the lion’s share of match funding during the first phase but also provided vital technical and policy advice to ensure quality and maintain momentum in the approval process.

Put simply, there will be less money around to invest alongside ERDF; what there is will be in smaller pots; and the guiding help needed by projects to unlock the money will be harder to find.

Regeneris Consulting has just completed its fifth mid-term evaluation of regional ERDF programmes*.  Although these were carried out and reported at intervals between summer 2010 and autumn 2011, they highlighted £800 million of funding is still available to be contracted. Although the picture has moved on, the message is clear: ERDF has money to invest.

But new approaches are required to maximise this opportunity.

If they are to step up the pace, programmes will need to work around widely held perceptions that ERDF is difficult. There is no getting around some of the complexities of ERDF but they are surmountable and there are clear signs of renewed interest (partly due to other opportunities falling away).  The challenge is to turn this interest into viable, compliant, eligible, quality projects which align with programme objectives and generate economic impact!

Looking across our recent evaluations, we  believe that programmes need to consider the following five pointers in order to step up to this challenge.

1. Maintain the focus on enterprise and innovation: broadening the scope of programmes may make it easier to shift money, but risks compromising their core purpose. The longer term need to restructure regional economies will endure across recessions and spending cuts.  Regions have a clear signal that the EU’s commitment to enterprise and innovation will remain and attempts to shift away from the Lisbon agenda at this stage may prove to just  be a wasteful distraction.
2. Think creatively about new avenues: opportunities created by Broadband Delivery UK, Regional Growth Fund, TSB schemes and the low carbon technologies agenda need to be aggressively seized. Although there is enough flexibility to accommodate wide new areas of investment, real problems do start to occur when trying to agree how the regulations apply to novel areas of activity. The programmes have little choice but to work one by one through these issues if they are to tap into these opportunities.
3. Be prepared to test the rules: assertiveness and creativity are required to avoid an overly risk-averse approach to the regulations. Great importance should be attached to compliance but there is risk that the programmes become over cautious and don’t spend. The new CLG approach means less help will be available from the regional teams to help applicants. Time, resources and expertise are needed to work through issues of eligible activity, apportionment, output definitions, match funding etc. Rules often turn out not to be as rigid as  initially determined but it requires persistence and creativity to get there. We have seen first-hand how projects have benefited from working constructively with programme teams to clarify the rules and deliver fully compliant packages of activity.
4. Strengthen the capacity of local partners: changes to programme management arrangements mean a greater role for LEPs, universities and local authorities who now need to provide the strategic focus for the programmes and generate a flow of new projects. These new demands coincide with significant pressure on costs and so are unlikely to be forthcoming without more extensive use of Technical Assistance. Limited use has been made of this resource in the first half of the programmes’ lives but this probably now needs to change.
5. Strike the right balance between regional and local: despite the changes of the past 18 months the 2007-13 programmes need to invest in projects with scale and reach beyond just very localised impacts. This will be more difficult now that much of the apparatus to deliver a regional focus has been dismantled. At the same time, the programmes also need to respond to the slowly gathering momentum behind localism. This will require re-building the capacity and expertise in local authorities and HEIs which was lost at the start of these programmes.

As minds turn to the next round of programmes (about which we will blog shortly) there is a risk that eyes are taken off the ball currently in play. Much hard work needs to be done and new partnerships and approaches forged if the money due to the English regions is going to be spent well.

These programmes got off to a slow start because of the shift in responsibilities between regional government offices and RDAs. Unless the final two years are marked by a greater sense of momentum, the next round of programmes will fall into the same early pitfalls.

* The North West Report can be found here

RGF Round 1 Successes: What can we learn?

The Government announced this month that £450m out of the total £1.4 billion Regional Growth Fund would be allocated to around 50 successful Round 1 bids, subject to due diligence checks.

The published information from BIS on successful bids has so far been somewhat limited; however through announcements by successful bidders and local press coverage, we have been able to start to piece together what RGF Round 1 has funded. 

Here are some of our headline findings and some of the lessons to be learned for Round 2:

1. The geographic spread of funding generally fits those areas most in need: investments are primarily focused in the North and Midlands, with very little going to the greater South East.  The West Midlands saw the greatest regional investment with the North East and Yorkshire & Humber also securing large portions; the North West got perhaps less than it might have expected.
2. Overall GBI type investments dominated: of the range of business support products and Single Programme invetsments that it replaced, RGF has most closely replicated the Grants for Business Investment scheme which supported projects aiming to increase productivity, skills, and employment in assisted areas. 
3. SMEs did poorly out of RGF: the majority of Round 1 funding went to investments in relatively large firms to expand facilities, increase R&D and increase employment.  This might reflect the strength of their case or it may simply be an indication of their experience and capacity to access funding.
4. Direct job creation & safeguarding were very important, but not critical: a number of major transport investments (for example those in Doncaster and Birmingham) are likely to create some direct jobs, but are more likely to have transformative longer-term impacts via supporting indirect job creation.  Longer term economic development invetsments are likely to feature more prominently in Round 2 with the introduction of Programme bids.  As a useful benchmark the average Round 1 RGF cost per direct job was £16,700 (£450m invested divided by 27,000 direct jobs created or safeguarded).
5. Significant private sector leverage was secured: £5.50 of private sector investment has been committeed for every £1 of RGF sought. Again an important benchmark for Round 2.
6. Investments have tended to focus on technology-based growth sectors: the list of approved projects indicates a particular commitment to supporting the aerospace, automotive, chemicals, bioscience and environmental technologies sectors.
7. There was no clear typical project size: The size of investments was very varied – of the 28 projects we have gathered funding information on, 16 were between £1-5m, 5 were between £5-10m, 4 were between £10-20m, and 3 were greater  than £20m.  The average value of Round 1 projects was £9m – the £450m divided by 50 projects. although the median size of the projects we reviewed was £3.4m – the more typical project size.
8. Very little ERDF has been matched: we have only identified one project that  successfully matched RGF with ERDF funding – the Manchester Eye Hospital project.  With most ERDF teams issuing a specific call for proposals for RGF Round 2, this ought to significantly rise in the next round. despite significant issues needing to be resolved.  Projects that are able to successfully match ERDF with RGF will effectively make the RGF fund go further and are likely to be well received.
9. LEPs may have been a factor: it appears that only two bids were approved in non-LEP areas, and despite having some of the most deprived wards in the country, LEP-less Lancashire received no RGF funding at all.
10. Green credentials were an important factor: as well as support for projects in wind energy, electric car development and energy efficiency, several projects have highlighted exemplary green credentials (the Hull housing bid has focused on delivering 1,475 sustainable eco-efficient homes, and the Cumbrian Seafoods factory development would be largely powered by wind, pv cells and gas from anaerobic digestion), suggesting that this may have been a point of particular interest in bid assessment.

 

Further Analysis on the Successful RGF Bids

 

Project Types – Summary of Bid Values

Source: Regeneris Consulting (based on analysis of 28 of the 45 announced projects,

for which we were able to get the required information)

The Round 1 announcement on 12^th April was met with headlines declaring the North West and North East were the main winners, based on the number of successful bids.  However,  our research, suggests that in fact the West Midlands was the most successful, in terms of total RGF value allocated, and shows a slightly different perspective on who the main winners and losers were in Round 1.

Winners	Losers
West Midlands– Capturing 25% of R1 funding – included a £70m grant to Jaguar Land RoverNorth East – 14 successful bids across the region, capturing around 13% of R1 funding	London & South East– submitted 52 applications and got 1 approved.North West – Despite significant areas of deprivation and a large economy, only captured around 6% of R1 funding.  None for Lancashire or Cumbria.
Source: Regeneris Consulting

The big question that everyone is asking following the Round 1 announcement is what can we learn about what the Government is looking for in RGF and how will this apply to Round 2?

It was clear from early on that a wide range of projects would be bidding for RGF funding, from more core economic development projects around skills, infrastructure and business support, to wider strategic investments, such as transport schemes and Housing Market Renewal.  Based on our review of 28 of the successful bids, the most successful projects have been grant and loan funds, R&D projects (which have included R&D facilities and delivering major R&D programmes), and industrial premises & equipment (such as construction of new factories and plants). 

So the broad message is that projects focused on direct job creation in sectors with a stronger technology focus (and so more valuable and well paid jobs) are likely to be winners in Round 2. However, there are chinks of light for projects that are more about indirect job creation and, especially, where SMEs can be shown to be the main beneficiaries.

Getting The Most Out of ERDF

DCLG have now begun to point the way forward for the UK’s ERDF programmes. The  proposals which have now emerged indicate:

• Management responsibility will be transfered from RDAs to DCLG, albeit to regional teams, probably co-located with other DCLG agencies in the regions eg HCA. In London GLA will retain management responsibility.
• Programme Monitoring Committees will be replaced by Local Management Committees with representation from DCLG, BIS, LEPs and a stronger role for LAs.
• LMCs will be chaired by DCLG Directors with a significant regional figure acting as Deputy.
• Future rounds of Regional Growth Fund will be better aligned with ERDF.

Regeneris Consulting provided views to DCLG during the consultation drawing on our insights from reviews of the current round of ERDF programmes and evaluations of earlier programmes. In short:

• We think it is sensible to continue with regional management of the ERDF Programmes: there really was not much serious demand coming froward from other partners to take on the mantle anyway, but we believe the current Programmes have now built up a body of capacity and insights, and a series of relationships with delivery bodies, which would be jeopardised if a fundamental restructure were embarked upon.
• Steps to better align ERDF with Regional Growth Fund are very welcome and would help the ERDF Programmes secure much needed match funding: but, achieving this in practice should not be under-estimated. There have been attempts over several Programme cycles to better integrate ERDF with ESF and, most recently with Single Programme. Based on our experience of Round 1, a substantial shift will be needed in the way RGF is handled. RGF’s emphasis on direct jobs and private sector leads does not easily align with ERDF. However, it is the decision-making processes which would require most attention. Regional allocations and delegated decision-making for RGF to the new ERDF teams may be required if we are to see substantial amounts of co-invetsment.

The proposals are not forthcoming on

• the extent to which standard application forms, calls for proposals and reporting will be imposed centrally on the regional programmes: such moves at this stage would make it harder for programmes to back-fill the gaps in their investment programmes.
• whether more local decision-making will be brought into the new arrangements: this would be likely to generate pressure for sub-regional allocations of ERDF cash which would then lead to delicate negotiations and generate additional management overheads, whilst creating delays at a really critical moment for the programmes.

Although there is merit in more local involvement in Programme governance, in reality the local authorities and sub-regional partnerships, which sit behind many of the LEPs, are already represented on PMCs. The major challenge facing PMCs is to ensure they provide Programmes with real strategic oversight and guidance, are able to make tough decisions and can follow through on each Programme’s objectives. It is unclear from the proposals how the changes to PMC membership will help in this regard.

To date the Programmes have relied heavily on core RDA staff to develop and contract with projects. DCLG appear to be expecting local partners to fill that policy and strategy void. While local partners may be able to address areas such as land & property or public realm, they are less likely to seize the agenda in the important Lisbon compliant areas such as knowledge transfer, innovation, business support, cluster development, venture capital & loan funds. It is also not clear where the Programmes will get help in essential operational issues such as HR, State Aids and legal matters.

So what does this all mean?

The ERDF Programmes all need to continue investing in line with their strategic objectives but will find this harder to do without RDAs alongside them. Given the technical and regional nature of the programmes it is not likely that DCLG or other central government teams and departments will be able to fully fill that void. The ERDF teams only have so much resource themselves and so it appears likely that some of the challenges of pulling together good quality projects will fall to local partners. Our advice to local authority economic development departments and other teams interested in delivering ERDF is:

• start thinking of yourself as a partner not as an applicant  – what can you do for the programme, rather than the other way around
• explore how you can beef up your technical expertise on ERDF matters, including looking at whether you can secure Technical Assistance
• compile a directory of ERDF, State Aid and legal advisors who can help you accelerate through the project set-up process
• build collaborative partnerships with other potential delivery bodies to ensure you capture opportunities to draw down larger chunks of funding
• ensure you keep all those strategy documents which provide the rationale and context for your projects – no-one else will be able to provide them for you in the near future
• keep assembling evidence on what works by undertaking good quality monitoring and evaluation  – your RDA may not be there to insist on it, but you will need that evidence to support future applications into the programme

Do you think we got the balance right? Are there important issues which have been over-looked? Tell us what you think….

ERDF and the Way Forward

The demise of RDAs has left England’s European Regional Development Fund Programmes edging towards a governance limbo. The recent Growth White Paper has asked us to wait until the 2011 Budget for clarity on the way forward. Although the new solutions should not be rushed, there is a risk that the vacuum starts to get in the way of progress just as ERDF’s importance to English regions escalates. Should ERDF arrangements be more local or more nationalised? Some of the braver LEPs have suggested they should have the responsibility but the latest news indicates that DCLG will be taking over, albeit with an oversight role for LEPs.
As the name suggests these Programmes are regional in their design and governance. In earlier rounds they were administered by Government Offices for the Regions, but these have fallen to a similar fate as the RDAs. More local delivery arrangements have been deployed in some places to bring ERDF decision-making closer to the action, albeit (like with most things connected to Europe and ERDF) with mixed results.
Running ERDF Programmes involves a broad mix of responsibilities including setting strategy, supporting and appraising investment proposals, legal contracting, monitoring and managing etc. The local vs national debate ignores the scope for a more shared approach. Regeneris Consulting has been evaluating the three programmes in North West, Yorkshire & Humber and the North East. Based on our insights we propose a set of core principles which need to sit at the heart of any solution.

1. Maintain a close fit between investments and strategic objectives: the current crop of Programmes have largely been successful in maintaining a good close link with their original core objectives and the innovation/low carbon elements of the Lisbon Agenda. Any new arrangements should ensure close alignment with the knowledge-based economic agenda.
2. Secure match-funding from a more disparate series of smaller sources: co-locating the current Programmes with RDAs was intended to help better tap into the Single Programme for match-funding. Although there have been challenges integrating the two funds, significant amounts of Single Programme have been matched with ERDF. As new and more disparate sources of match funding come to the fore, the Programmes will need to ensure new opportunities are maximised.
3. Guarantee compliance with complex EC regulations: the early days of the current round of Programmes were characterised by a steep learning curve for the new staff teams. Although that learning process goes on, there would be a serious risk to the ERDF Programmes and the projects they support if these accumulated insights and expertise were now jeopardised. Once lost this expertise cannot quickly be resurrected and the RDA brain drain already underway would be seriously compounded.
4. Maintain current average project size and reach: Programmes have been reasonably successful in shifting away from supporting the large numbers of smaller projects which created a hefty management workload and concerns about inefficient delivery, duplication of provision and thinly spread delivery expertise. New approaches should be capable of quickly generating high impact, highly efficient, larger scale projects.
5. Higher impact projects which can generate bigger returns: the Programmes have all encountered unforeseen recessionary conditions and now need to really prioritise much higher impact projects with their remaining un-allocated resources if they are to get back on track. This may require a much more assertive approach and skill-set to identify and bring forward new projects, working in partnerships with more local and national organisations.
6. Minimise administrative disruption and maintain management continuity for existing projects…: huge amounts have already been contracted. The Programmes really needs these commitments to succeed and need to be assertive but supportive in encouraging existing projects to think creatively about how they can do more, potentially with less.
7.  …to maximise management efficiency and limit overheads: the Programme’s have acquired a substantial operating capacity and cost base. As their partners come under budgetary pressure and scrutiny, they will need to demonstrate their efficiency and the value for money they offer. Where they can, the Programmes should tap into existing capacity and expertise to ensure they are not duplicating effort or displacing valuable skills which already exist elsewhere.

Our work with European Programmes continues and the Regeneris team are happy to share our insights if you are eager to hear more. Please contact us.